Japan intervenes with $50 billion to support the yen in one day

Data from the Japanese Ministry of Finance revealed record spending amounting to about $50 billion in one day to support the yen, on July 30, as part of a campaign of interventions worth a total of $97.16 billion during the months of July and August, in a move that reflects the extent of the Japanese authorities’ concern about the decline of the currency, and the difficulty of stopping the pressures it is exposed to despite pumping huge sums into the exchange market.

The data, issued Monday, showed that Japan bought a total of 15.399 trillion yen ($97.16 billion) during the two months, of which it spent 7.976 trillion yen, or about 50 billion dollars, on July 30 alone, which is the largest amount it spends in one day to support its currency.

The volume of new interventions exceeded the amounts spent by the authorities in April and May, after officials’ concerns increased with the yen’s decline to about 164 yen against the dollar earlier in the year, which is the lowest level of the Japanese currency in four decades, which prompted Tokyo to intensify its movements in the exchange market to confront the decline of the currency and its repercussions on the local economy.

The campaign was not limited to Japanese action, as Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Besent confirmed the implementation of a coordinated intervention to support the yen in late July, in the first operation of its kind between the two countries since 1998, reflecting an unusual level of cooperation to confront currency market turmoil.

Although the joint intervention gave the yen initial support, the Japanese currency remained weak, hovering around 158.20 yen against the dollar, with increasing expectations that the Federal Reserve will raise US interest rates again, which reinforces the belief that the wide gap between interest rates in the United States and Japan will continue.

During the summer, Besant expressed clear support for Tokyo's moves aimed at limiting the decline in the value of the yen, noting that the weakness of the currency contributes to increasing domestic inflation. His statements raised speculation about the Bank of Japan's intention to accelerate the pace of tightening monetary policy to confront pressures on the currency and prices.

The Bank of Japan raised the interest rate to 1.25 percent in September, amid expectations that it will take an additional step before the end of the year. The weakness of the yen is one of the main factors on which the bank relies in assessing the prospects for the economy and inflation, at a time when the Japanese authorities face a difficult equation between supporting the currency and avoiding increasing pressure on economic activity.

US stocks recovered part of their sharp losses recorded over the past week, with the major indices rising in trading on Monday, supported by a decline in oil prices and an improvement in investors’ appetite for risk, despite continued pressure on the shares of artificial intelligence companies, led by “Nvidia”, which continued to decline amid an investigation related to its CEO, Jensen Huang.

The Standard & Poor's 500 Index rose by 1.9 percent, continuing its gains for the second session in a row, while the Dow Jones Industrial Average rose 805 points, equivalent to 1.6 percent, and the Nasdaq Composite Index increased by 2.5 percent, by 10:30 a.m. New York time.

The recovery in the markets coincided with a decline in Brent crude 4.1 percent to $94.27 a barrel, continuing its decline from levels exceeding $112 at the beginning of the month, amid a state of uncertainty about the course of the war with Iran.

Oil prices fell after US President Donald Trump said, in an interview with CNN over the weekend, that resuming strikes seemed “extremely unlikely” if negotiations made progress, while US Secretary of State Marco Rubio described some Iranian demands to end the war as “exaggerated and ridiculous.”

Shares also received support from strong business results from major American companies, as Constellation Energy shares rose 6.3 percent, after the company’s profits and revenues during the summer exceeded analysts’ expectations, benefiting from agreements to supply electricity to the data centers of major technology companies.

On the other hand, artificial intelligence companies are still under the microscope of investors, after the results of the US midterm elections raised concerns about the possibility of imposing restrictions on the expansion of the establishment of data centers, against the backdrop of criticism related to high electricity bills. These restrictions, if passed, would affect demand for artificial intelligence chips, electricity, and services related to this sector.

In terms of bond markets, the yield of 10-year US Treasury bonds stabilized at 4.86 percent, the level recorded at the end of Friday trading, after sharp fluctuations last week. Falling yields would reduce the costs of mortgages and loans, and support valuations of stocks and other investments.

Nvidia shares fell by about 8 percent with the opening of trading on the New York Stock Exchange, Monday, causing the company to lose about $200 billion in market value, amid investors’ fears about the repercussions of an investigation opened by its board of directors regarding reports that its CEO, Jensen Huang, was targeted by Chinese intelligence.

The stock's decline came after the company announced, on Sunday, the opening of an investigation into media reports that Huang was the target of a foreign intelligence attempt, against the backdrop of an emotional relationship he had with an executive who was suspected of collecting information for China.

Huang had acknowledged the existence of a relationship with the executive official, according to what was reported by the New York Times, which reported that US intelligence services concluded that she was collecting information for the benefit of Beijing. These reports raised questions about the possibility of the company’s president being subjected to an intelligence targeting attempt, and what repercussions this might have on the company’s security and leadership.

In the first Chinese comment on the case, the Ministry of Foreign Affairs rejected the accusations during a regular press briefing on Monday, describing them as a smear campaign targeting Beijing.

These developments come at a time when NVIDIA occupies a pivotal position in the race to develop artificial intelligence, as its chips operate many data centers and computing systems used to train and operate artificial intelligence models. Its advanced processors also represent a major focus of US restrictions on technology exports to China, as part of the competition between the two countries to possess the most advanced technologies.

Huang's importance to the company's future is reflected in investors' sensitivity to the issue; Dan Ives, partner and managing director at Yorkville Ives, believes that the possibility of Huang stepping down or being removed from his position remains limited, but he pointed out that the link between NVIDIA’s success and its ambitions in artificial intelligence with the personality of its CEO makes any threat to his continuation in the position a source of concern for investors.

Ives added that the results of the Board of Directors' investigation may open the door to the possibility of his removal, even if this scenario remains unlikely, considering that the issue may put pressure on the stock in the near term until its circumstances become clear.

Nvidia's stock had reached a record level of $243.37 last month, before falling by about 5 percent in trading prior to the opening of the market, reaching its steep losses with the start of trading.